Double whammy for telecom sector: Phones and phone bills to get costlier under GST

Most mobile phones may get costlier by 4% to 5% after the GST rate was fixed at 12%, which will make locally manufactured devices more expensiveET Bureau | Updated: May 20, 2017, 09:07 IST

(Thinkstock Images)Come July 1, you will have to spend more on your phone bills and to buy new mobile handsets as the government on Friday decided to impose on them goods & services tax (GST) of 18 per cent and 12 per cent, respectively, distressing the two industries worried about falling consumption and investments.

Mobile users will have to shell out an extra Rs 30 if their monthly phone bill is Rs 1,000, as the tax rate on telecom services will go up from existing 15 per cent to 18 per cent.

Likewise, effective talk time for prepaid customers will reduce. For instance, effective talk time on a Rs 100 prepaid voucher will marginally dip to Rs 82 instead Rs 85.

Similarly, most mobile phones may get costlier by 4-5 per cent after the GST rate was fixed at 12 per cent, which will make locally manufactured devices more expensive as they currently operate under lower tax rates due to benefits provided for local manufacturing.

About 80 per cent of the 59 million phones sold in India in January-March were made locally, as per Counterpoint Research. The industry has said it hopes the government will come up with steps to keep benefits of local manufacturing vis-à-vis imports intact, like in the pre-GST regime, else millions of dollars of investments made over the last year or so will be at risk.

“The telecom industry is disappointed with the announced GST rate of 18 per cent, which will further stress an already bleeding sector,” said Rajan Mathews, director general of Cellular Operators Association of India (COAI).

The decision is disappointing, he said, since “COAI had submitted to the government that consideration be given to the sector’s present financial condition and that any GST rate beyond the existing 15 per cent (service tax) would make telecom services more expensive for the consumer”.

Mathews said the high GST rate would augment the industry’s burden — currently with a debt of nearly Rs 4.9 lakh crore — and slow down planned network infrastructure rollouts, which, in turn, could impact key government initiatives, such as Digital India and Cashless India.

A tax expert at EY India said the increase in GST rate for telecom services is far more than the increase in tax credits, "given that the only benefit under GST accruing to a telco is tax credits on purchase of goods". In fact, total benefit by way of increased tax credits to most companies, the expert said, will not be more than 0.5 per cent of revenues as against increase in tax rate by 3 per cent. Accordingly, the 18 per cent GST rate will only increase the cost of telecom services for the common man.

The mobile phones industry want the government to come up with incentives by July 1 to ensure that Make in India remains an attractive proposition for contract manufacturers like Foxconn who have invested top dollars in setting up manufacturing plants.